Brent crude oil prices climbed by more than $1 towards $107 on Friday after the United States approved air strikes against Islamist militants in northern Iraq, renewing concerns over the security of oil supplies from OPEC’s second-largest producer, according to Reuters.
President Barack Obama said he had authorized limited use of American air power on advancing Islamic State (IS) fighters in Iraq’s semi-autonomous Kurdish region but had no intention of getting dragged into war there.
“The market will look very close at what happens next and whether oil supplies from southern Iraq could be under threat,” said Tetsu Emori, a commodity fund manager at Astmax Co Ltd in Tokyo.
The bulk of Iraq’s oil is produced in the south, removed from the fighting in the north. The Kurdistan Regional Government on Friday said its oil export pipeline to Turkey was operating normally at a rate of 120,000 barrels per day.
In Kurdistan, producer Afren suspended output at its small Barda Rash oilfield, but Genel Energy said its Taq Taq and Tawke oilfields continued producing and averaged 230,000 barrels per day of oil this week.
PVM Oil Associates Managing Director David Hufton said a loss of oil production from the Kurdish region would not affect the market.
“Should IS make advances south towards Basrah, it would be a very different matter,” he added.
Brent crude was up 88 cents to $106.32 a barrel by 5 a.m. ET, after trading as high as $106.85 a barrel earlier in the session.
U.S. crude rose 72 cents to $98.06 a barrel after trading as high as $98.45 a barrel.
Brent’s premium to U.S. crude hit $8.57 a barrel on Friday, the highest in more than six weeks.
“Speculators may use this as an opportunity to enter the market after the big correction we saw over recent weeks. But it seems the market is still oversupplied, and that should keep a cap on prices,” Emori said.
Brent spiked above $115 in mid-June on fears that violence in Iraq would disrupt oil supplies from the OPEC member.
But prices fell back more than $10 over the past six weeks as it became clear that Iraqi oil continued to flow steadily from southern fields, over 500 miles (900 km) from the escalating violence in the north.
“In essence we find U.S. air strikes more bearish than bullish for oil as the act finally draws a line not to cross for IS and re-enforces both the stability in south Iraq and in Kurdistan,” said Oliver Jakob, an analyst at Switzerland-based Petromatrix, in a note to traders.
